National Music Publishers' Assn. president/CEO David Israelite told NMPA members during the trade group's June 16 annual meeting that the lack of blanket licensing for U.S. mechanical and synchronization rights is robbing publishers of growth opportunities. Below is an edited transcript of his remarks.
Today .Biz also published a response from Jim Routh, VP of business development at Smule, the developer of popular music apps like I Am T-Pain and Ocarina who calls for different solutions to the same problem.
U.S. Music Publishers Should Embrace Blanket Licensing
The three biggest challenges facing U.S. music publishers are combating the theft and infringement of our intellectual property, helping and encouraging legal services to prosper and making sure that songwriters and publishers get their fair share from those legal sites.
All three of those challenges have something in common: They are hurt by the crisis we have in our industry over licensing.
It's a boring topic. It's a technical topic. And it's one that people outside of the industry don't really understand or want to understand. But I think it's very important that we have this conversation.
The way that we license our intellectual property doesn't work. It's broken.
Take the three largest income streams that we have. Start with mechanical. We are laboring under a 100-plus-year-old law that says we have a compulsory license with regard to our mechanical rights. We have no negotiating power. We must license it. And we've seen what that's done in the marketplace.
For a typical iTunes download that sells at $1.29, 81 cents goes to a record label and 9 cents goes to a music publisher and songwriter-because three judges in Washington, D.C., tell us that's how much we get for our mechanical reproduction.
We talked several years ago about reforming the U.S. Copyright Act's Section 115 [regarding compulsory mechanical licenses]. There was a piece of legislation that was introduced in Congress and then died. It is time to revive Section 115 reform.
What Section 115 reform would involve is a series of designated agents, similar to how the [performing rights organizations (PRO)] work for performances. As a publisher, you should have a right to choose which one you want to join. You should have freedom to move, there should be competition. But ultimately, licensees need to be able to go to a limited number of places and get the rights that they need to make things happen.
If we can create a licensing system that makes sense for our 115 mechanicals, maybe we have a chance to get rid of the compulsory part of our license so that [the] 81-cents-to-9-cents ratio becomes something more fair.
With performances, it's a whole different problem. The consent decrees that we live under with two of the three PROs, at times, produce challenges. Look at recent case examples [in which federal courts slashed the negotiated blanket fee that music services pay BMI and ASCAP]. Look at the marketplace, what happened with regard to Pandora, where record labels are getting $14 for every $1 that publishers get. Our challenge in the performance world is the efficiencies of the marketplace. As an industry, you've got to work together with the PROs to figure out how to use the efficiencies of the marketplace to make sure that we're getting our full value out of our performance licenses.
Then take synchronization. We're very good at licensing synchronizations one at a time. The problem is that if you look at the opportunities for the future, they don't just want one song for one purpose, they want mass synchronizations. And as an industry, we are completely unprepared to give that type of licensing for what could be a very good business opportunity.
As you probably know, we are currently in a lawsuit against YouTube. We have sued Google and YouTube because of the music that they have on the site that we believe is not licensed. Let's assume that Google came to us today and said, "We surrender. You're right. We'll pay you what you want. How do we get licenses?" We couldn't do it. And that's the problem.
I suggest to you that we've got to start rethinking our synchronization rights in a way that's more akin to performances. When we license our performance rights out in mass basis, we have no idea the purpose for which it's being used. With synchronizations, one of the biggest objections to mass licensing is that publishers want to approve every particular use. That is a position that we can take, but if we do, we're going to miss out on all of the opportunities that exist from YouTube and things like YouTube.
The 115 reform that I talked about as a partial solution to our mechanical problem can also be a partial solution to our synchronization problem because publishers would be gathered together with designated agents and a licensee would have a limited number of places to go to reach all music publishers. There is a method in place then to have a mass synchronization conversation.
If we don't do something about our ability to do mass mechanical licensing, our ability to take advantage of the market forces of performances and figure out a way to do mass synchronizations, we are going to miss out on many business opportunities that could provide solutions to the declining fortunes of the whole music industry.